Study: Company Patent Suits Dropping

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Corporations have started going to court less often to protect their intellectual-property assets—partly because they’re getting less money when they win, according to a new study of trademark damages by PricewaterhouseCoopers.

In 2005, the number of patent cases filed fell to 2,720, the first decline in 16 years, and continued to decline through the first six months of 2006, the Big Four firm reported earlier this week. Further, the average award amount dropped sharply in the last year, and median award amounts have flattened in the past few years.

During the past 15 years, to be sure, the number of patent suits rose faster than the number of patents that have been granted, according to the study. The number of patent infringement cases filed increased every year from 1,171 in 1991 to 3,075 in 2004. And the number of awards in patent cases increased 59 percent during the period of 2000 through 2006 as compared to the 1990s.

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The takeaway for CFOs? “Litigation is still hot,” says Aron Levko, a PwC partner and the firm’s leader intellectual property practice leader. The drop in the number of case filings and amounts of damage awards “just means that there’s a temporary plateauing. The court is still the primary validator of a patent’s enforceability, and to management these assets are still growing in value.”

Among the causes of the recent dip in new patent cases filed in U.S. Federal District Courts are reduced patent suits related to business methods, more alternate dispute resolutions, a number of recent Supreme Court rulings deterring suits, the increased cost of suing, and reduced damage awards, according to the study.

When companies do go to court to shield their patents, they’ve got a good shot at winning—particularly when they choose the state venue carefully. Overall, plaintiffs win about 35 percent of the time, and the win rate soars to 61 percent after motions for summary judgment have been considered and the case continues. More significantly, different venues affect plaintiffs’ win rates, according to the study.

The differences can be striking. For instance, the Western District of Wisconsin—the state most favorably disposed to plaintiffs—has a win rate of 63 percent overall and 91 percent after summary judgment. In sharp contrast, the venue with the lowest win rate for plaintiffs, the Eastern District of Michigan, has a plaintiff win rate of 12 percent overall and 33 percent after summary judgment.

The study is based on 2,193 U.S. Federal District Court cases (including them 1,367 patent cases, 797 trademark cases, and 29 cases that included both patent and trademark issues) and 350 Federal Appeals Court cases (including 273 patent cases, 70 trademark cases, and 7 cases that included both patent and trademark issues).